Another easier to read report from Morgan Stanley's web site. Basically, Overweighed, Industry Attractive, price target $114.00 [closing price 1 June 2018 = $83.40]. Sell off of DXC lately due to shareholder confusion over the PRSP spin-off. I admit to being a confused shareholder, but I have not sold:
DXC Technology Company
DXC Sell-off Looks Overdone
We are buyers of DXC and see meaningful opportunity for
upside following a sell-off in the stock driven by investor
confusion around the mechanics of the USPS spin and
guidance offered on the call. Reiterating our $114 PT and
Overweight rating.
USPS spin driving confusion. DXC continued to sell off yesterday after trading
off on substantial volume before the holiday weekend. Including today's
performance, the stock closed 10% lower than just prior to the earnings call
(Thursday). However, we believe the sell-off is overdone considering investor
confusion evident by questions that we have fielded over the past few days. As a
result, we continue to see potential for upside with the when issued stock
(excluding USPS) trading at approximately 8.1x our FY20 EPS estimate (March
year-end) and 5.6x EV/EBITDA on our FY19 numbers. Our $114 price target for
the consolidated company (including the rights to PRSP) implies 27% upside from
yesterday's closing price for DXC.
The following addresses several of the most frequent topics we have discussed
with investors over the past few days:
DXC Technology Company ( DXC.N, DXC US )
Morgan Stanley does and seeks to do business with
companies covered in Morgan Stanley Research. As a
result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of
Morgan Stanley Research. Investors should consider
Morgan Stanley Research as only a single factor in making
their investment decision.
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
report.
Guidance excludes USPS. Some estimates and price targets appear to
include a mix of consolidated and stand alone estimates. Company's FY19
guidance was for the stand alone DXC business. The two months of USPS
operations ending May 2018 will be accounted for in discontinued
operations for 1Q19.
Owners of DXC today will receive shares of PRSP. As indicated below,
through May 31, DXC shareholders will receive one share of PRSP for
every two shares of DXC. PRSP 'when issued' stock closed yesterday at
approximately $25.90 per share. This implies approximately $12.95 per
share of additional value for current DXC shareholders driven by
operations not accounted for in our model. |
